On August 2, 2021, the Board of Governors of the International Monetary Fund (IMF) approved the allocation of SDR456.5 billion, equivalent to US$650 billion. Of this amount, African countries are to receive US$33.7 billion to support the additional financing needs of countries spurred by the devastating impact of the coronavirus pandemic.
According to the African Development Bank, Governments of African nations will require additional financing of about US$484.6 billion within the next three (3) years to close the financing gap and to emerge from the COVID-19 crisis stronger and more resilient.
The Government of Ghana in the past week confirmed the receipt of US$1 billion from the International Monetary Fund (IMF), being its share of the new Special Drawing Rights (SDRs) allocation to boost the countries liquidity and economic recovery efforts following the dire impact of COVID-19 on the lives and livelihoods of Ghanaians.
“The Government of Ghana expresses its gratitude to the IMF for this historic advocacy and SDR allocation. It provides additional policy space to support Ghana’s efforts to counter the impact of the COVID-19 pandemic on lives and livelihoods,” Ken Ofori Atta said following the receipt of the SDR.
“It will support the GHS100 billion Ghana Cares (Obaatanpa) post-pandemic recovery program,” Ken Ofori-Atta further added.
International Monetary Fund (IMF) Special Drawing Rights (SDR)
The SDR is an international reserve asset created by the IMF in 1969 to supplement the official reserves of its member countries. In other words, Special Drawing Rights are a monetary reserve currency that serves as a substitute for the current money reserves of IMF member countries.
The value of an SDR is based on the five major currencies in the world which are the United States dollar, Japanese yen, Chinese yuan, the euro, and the British pound. That being said, SDRs are not money at least not in the natural sense because they cannot be used to purchase goods or services. However, they can be traded for freely usable currencies, where freely usable currencies refer to currencies that are widely traded in the international principle exchange markets and used to make payments for international transactions. Examples of such currencies include the British pound and the United States Dollar. Countries can thus exchange their SDR for let’s say the US Dollar and use it to fund their economic programmes.
How the Special Drawing Rights will help Ghana
The world is going through one of the worst economic crises since the Great Depression of which Ghana is included. Employment dropped drastically during the height of the pandemic with many business establishments closing down.
The government in response instituted a number of recovery programmes to help salvage the situation. The most notable of them is the Ghana CARES (Obaatanpa) programme.
This alleviation programme appears not to be sufficient to fully bounce back the economy. Hence the US$ 1 billion SDR support from the IMF. The SDR will add up to Ghana’s current international reserve which is said to have increased to US$11,302.41 million in May from US$10,990.2 million in April of 2021
The SDR will provide the liquidity support that Ghana needs to ensure the establishment of better healthcare facilities and the stimulus packages that businesses and the economy as a whole need to bounce back to pre-pandemic levels.